Gauging the health of local housing market

Several times a month I’m drawn into a discussion about the health of the housing market. The stats, as I read them, say that local residential real estate is in full-scale recovery mode. Sales – completed and pending -- are up, inventory is down and there is a slow but gradual shift in the financing data away from cash transactions (investors, largely) and toward mortgages (utilized by owner-occupants).

Yet the cynics out there continued to harp on prices. I keep hearing, “But what about prices, Adam?”

Here’s my new response: What about them?

A Realtor friend of mine has been saying for two years not to put too much credence in the average sales price during the recovery. The reasons are multiple: the number swings wildly depending on seasonality (spring and summer are better than fall and winter); the banks are releasing foreclosure properties in waves, making some months more foreclosure-heavy than others; a few million-dollar sales (or $30,000 sales) can skew the figure; and low interest rates have people buying more house than they would have in other markets.

Plus, as this Realtor points out, “the price is what the price is.” The goal is to move property, and the so long as property is being bought and sold, the price is secondary.

That said, price is important. Prices firming up is indicative of a stabilizing market. Once that balance is rediscovered, demand again becomes the top driver in residential real estate.

But a stat in a chart isn’t going to tell you that. The average price in theSavannaharea dropped $30,000 in August compared to July after rising $23,000 in July over June. Did the market change in that period? No.

Two groups of people in particular have a good grasp on pricing: Bankers and Realtors who deal exclusively – or at least heavily – in foreclosures.

Bankers have a feel for prices because they are constantly adjusting their balance sheets to adjust for property values. Until recently, bankers were “marking down” properties in their portfolios to reflect values established by new appraisals. For repossessed properties, they were marking them down repeatedly.

Talk to the local bankers today, however, and they’ll tell you that trend has abated. Properties are holding their values. And in some instances, banks are realizing gains upon selling repossessed properties – the sales price exceeds the previously appraised value.

As for the foreclosure Realtors, they have been saying for most of this year how new repossessions hitting the market are commanding multiple offers. That pushes prices up on foreclosure homes. In many areas ofSavannahnow, homes listed by private sellers (you and me) are competitive, price-wise, with the bank-owned properties.

So where do we go from here? My crystal ball, which is made of plastic, says the market will continue to heal but not to expect a significant rise in prices. There’s a lot of so-called “shadow inventory” out there, both in the form of distressed properties yet to hit the market and homes whose owners have been waiting for the market to bounce off the bottom to list.

The bleed off in inventory has been stemmed this summer, holding steady around 3,500 houses. That’s not a bad number so long asSavannahcan maintain the current monthly sales pace around 400 homes (406 is the average through 2012’s first eight months). A dip this fall followed by the usual winter blahs could dampen the outlook, though.

So if you want to effectively track the health of the local housing market, pay close attention to sales and inventory. And stop sweating the prices.